Subject: Change in Capital: Treatment of Certain Claims on, or Guaranteed by, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation Date: October 30, 2008

To: Chief Executive Officers of All National Banks, Department and Division Heads, All Examining Personnel, and Other Interested Parties

Description: Notice of Proposed Rulemaking – Request for Comments

Summary

The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision (agencies) are seeking comment on a Notice of Proposed Rulemaking (NPR) that would change the risk weight from 20 percent to 10 percent on Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) guaranteed securities, as well as their debt issuances.

Background

On September 7, 2008, the U.S. Department of the Treasury (Treasury) entered into senior preferred stock purchase agreements with Fannie Mae and Freddie Mac, which effectively provide protection to the holders of senior debt, subordinated debt, and mortgage-backed securities (MBS) issued or guaranteed by these entities. In light of the financial support provided under these agreements, the agencies are proposing to amend their respective general risk-based capital rules to permit banks, bank holding companies, and savings associations to assign a 10 percent risk weight to claims on, or guaranteed by, Fannie Mae or Freddie Mac. Claims include all credit exposures, such as senior and subordinated debt and counterparty credit risk exposures, but do not include preferred or common stock. This risk weight could be applied to credit exposures created on, before, and after September 7. The 10 percent risk weight would apply to these exposures so long as Treasury's purchase agreements remain in effect with the respective entity.

The NPR was published in the Federal Register on October 27, 2008. Comments on the proposal are due on or before November 26, 2008.

Further Information

For further information about this bulletin, contact the Office of the Chief National Bank Examiner (202) 649-6370.